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Understanding Local Option Tax

What is Local Option Tax?

Local option tax is a way for municipalities in Vermont to raise additional revenue. A municipality may vote to levy the following 1% local option taxes in addition to state business taxes:

Local Option Sales Tax
6% sales tax + 1% = 7% total tax

Local Option Meals Tax
9% meals tax + 1% = 10% total tax

Local Option Alcoholic Beverages Tax
10% alcohol tax + 1% = 11% total tax

Local Option Rooms Tax
9% rooms tax + 1% = 10% total tax

Please note: Local option tax does not apply to the sale or rental of motor vehicles which are subject to the motor vehicle purchase and use tax.

Calculating and Remitting Local Option Tax

Local option tax is calculated as 1% of the taxable (net) sales for each town.

A transaction is subject to local option tax if it is subject to the Vermont sales, meals, rooms, or alcoholic beverage tax. Local option tax is “destination-based.” In other words, the tax is collected based on the location where the buyer takes possession of the item or where it is delivered.

All vendors, including out of state vendors, authorized to collect taxes in Vermont are required to collect and remit to the Vermont Department of Taxes all applicable local option taxes for sales that occur in participating municipalities. No additional registration with the Department is necessary.

Although local option tax is levied by the municipality, the Department collects and administers the tax.  Vendors who collect this tax file and remit it to the Department along with their state taxes, online or by paper form.

Be sure to charge, collect, and remit local option tax for applicable purchases in the municipality where the buyer is consuming or taking possession of the item or where the item is being delivered.

Find out which municipalities levy Local Option Tax or lookup towns by zip code. You can also look up sales tax rates for more than 15,000 taxing jurisdictions across the U.S. for free at Avalara.